Prime minister: Porto Franco state loan justified

Porto Franco.
Porto Franco. Source: Anna Aurelia Minev/ERR

Prime minister Jüri Ratas (Center) says the controversial decision to grant a nearly €40-million state loan to a central Tallinn construction project was justifiable, since the investment would start yielding benefits from next year in terms of revenues, taxation and employment, adding this was clear even before the coronavirus pandemic began.

Finance minister Martin Helme (EKRE) has added that companies could not be left high and dry during and after the pandemic, and also said conditions for issuing state loans had been made stricter in the spring.

"This project is important for the Estonian economy, and for Estonian employment," Ratas said at Thursday's regular government press conference.

News that the Porto Franco multi-faceted construction project in Tallinn's harbor area would be getting a loan was met with criticism, including from other real estate developers, who said that it constituted illegal state aid.

While state credit agency KredEx, the organization through which the loan is being channeled, has provided loans to other companies struggling during the pandemic – including €100 million to shipping line Tallink – this money is intended for up-and-running businesses, and not construction sites, critics say.

The prime minister said that Porto Franco will bring in about €18 million to the Estonian economy next year, as well as provide construction jobs for about 500 people.

When the matter was discussed at cabinet level, KredEx, whose management board chair Lehar Kütt tendered his resignation Thursday, was consulted, and had no objections to the funding.

"They considered it important at that time. I have not received any signal from KredEx that they do not consider it important," Ratas said.

Ratas said that a company has the right to apply for a loan if it has a significant impact on the economy or sector, adding that some may see many other beneficiaries of KredEx money as similarly unworthy, but that this was the reality of government-level decision making.

Pandemic brought clash of vision in KredEx hierarchy

Finance minister Martin Helme (EKRE), also participating in Thursday's press conference, said that while there was a difference of vision between Lehar Kütt and KredEx's supervisory board, there had been no ill-will.

Helme added to Ratas' financial projections for Porto Franco his statistic that the project will bring in €23-24 million in tax revenues next year.

Foreign minister Urmas Reinsalu weighed in on the topic as well, saying that one of the conditions for getting a KredEx loan was that recipients must be proven not to be able to ge a loan from another source under market conditions, something which Porto Franco satisfied.

Reinsalu added that looking ath the economy holistically, rather than simply in terms of the construction sector, was key.

Regarding KredEx, Martin Helme said that the COVID-19 pandemic had brought something of an existential crisis in that it now appeared that the organization may be mediating in loans by the state itself, rather than just in its original function as a loan guarantor for banks.

When the management board and the supervisory board clash, it is clear that the leader of the first should go, since the latter implements the government's political will, Helme added.

Government: We didn't want Porto Franco to sit there half-finished

The government furthermore simply had to draw the line as the pandemic started to bite and regular bank lending froze up. The government could not just allow companies to die out wholesale, he added.

Avoiding a situation such as construction projects outside the city center, such as the Osten Tor apartment block on Pärnu mnt in Tallinn, which stood half-built for a decade before it was finished, was desirable when it comes to prime real estae in the city center, Helme added.

The supplementary budget issued in April in response to the pandemic also tightened up lending conditions, Helme said.

Other project's of Porto Franco's scale would be treated by the government in the same way, should any arise, he went on.

The Porto Franco deal announced in late July sees a loan of €39.4 million set for the next six years, with an interest of 12-month Euribor plus 2 percent per annum.

The development will house residential, business and recreational property.

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Editor: Andrew Whyte

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